Business Unit 2 Operations

AS Business Unit 2 Operations

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Operational Decisions

Operational Targets

  • quality
  • unit cost
  • capacity utilisation

Unit Cost

  • total cost
  • units produced
  • measured in £'s
  • low unit cost is preferable, more profit

Capacity Utilisation

  • current output x 100
  • max possible output
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Operational Decisions

Managing Output to Match Orders

  • use of overtime - paying incentives to employees who volunteer overtime
  • hiring temporary and part-time staff - temporary staff are needed in seasonal demands and only work when needed; part-time staff can be hired when demand is high and extra help is needed
  • sub contracting - making a contract with another company to use their employees who specialise in their needs
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Effective Operations: Quality

Meaning of Quality

  • products meet specifications that the firm has set out and these meet customer's needs and satisfactory

Quality Standards

  • a framework for achieving a recognized level of quality within an organization
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Effective Operations: Quality

Systems of Quality Assurance

  • total quality management (tqm) - an approach to quality involving all the employees in the organisation, more than a system; the company's culture or philosophy is quality. aims to create no defects.
    • + emphasis on teamwork, empowerment of employees, good quality means satisfied customer, waste reduced, scope to increase price
    • - high cost to keep employees motivated, regular training, lower output.
  • quality control - least commitment, products are inspected at the end of the production by managers. faulty items are reworked or scrapped. profit is made by high levels of production.
    • + increased output, so could lead to scope for increased sales
    • - lose good reputation from poor quality, high costs due to waste and overtime reworking products
  • quality assurance - system is about making sure that a certain standard of quality is acheived. is seen as a way to defferentiate from competitors.
    • + gives product a selling point as quality awards can be given to products that meet the standards, self-check system
    • - training may be required for employees to sufficiently self check
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Effective Operations: Quality

Issues with Introducing and Managing Quality

  • can be expensive ie. more supervision needed, market research needs to be developed to know what the customers find satisfactory
  • time consuming
  • some mistakes can be missed
  • defects on all products can be inevitable

Benefits of Introducing and Managing Quality

  • customers will be much more satisfied with products if they are of high quality and may return or 'spread the word'
  • if customers can rely on the company for quality, a loyal customer base will be made and company may make an established, well-known brand name
  • lower variable costs (less waste, less overtime checking each product)
  • highly motivated employees (less mistakes are made)
  • better reputation with customers
  • high value added
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Effective Operations: Customer Service

Methods of Meeting Customer Expectations

  • identify customer expectations through market research
  • decide on level of service to be offered and train staff to meet this level
  • put quality standards in place that have to be met
  • monitor staff performance comparing to quality standards and level of service

Benefits of High Levels of Customer Service

  • increased reputation therefore increased sales and revenue
  • scope to charge more for product or service
  • create loyal customer base and brand loyalty
  • advantage over competitors

Limitations of High Levels of Customer Service

  • cost and time of training, also maintaining motivation may increase costs
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Working With Suppliers

Factors affecting choice of Supplier

  • quality
  • cost
  • reliability
  • reputation
  • location
  • speed of delivery
  • flexibility
  • size
  • loyalty
  • ability to negotiate

Roles of Supplier to Improve Operational Performance

  • if the chain fails, it can affect stock levels which may not meet customer demands
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Technology in Operations

Types of Technology

  • the use of machines that can be both routine and increasingly complex activities but are often repetitive

Issues with Technology

  • expensive initial cost
  • maintenance and depreciation
  • cost of mistakes

Benefits of Technology

  • increases efficiency
  • lower costs (fewer staff, no need to train, no need to motivate)
  • increased and faster output
  • reduces waste (less error compared to human error) therefore more reliable
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